Correspondence with the Federal Reserve agent (chairman of the board of directors of the Federal Reserve bank) of the district may precede or follow the adoption of this resolution and results in furnishing the applicant company with a form designed to describe the applicant. The Federal Reserve agent may call for information on additional points if circumstances seem to require, but ordinarily the bank will merely fill out the application form and prepare a certified copy of its statement of condition on a recent date, and a copy of its charter and articles of incorporation with all amendments up to date, and transmit the papers to the Federal Reserve agent. The latter officer has meantime probably made inquiry as to the general standing of the institution and has usually requested the state banking superintendent or com-missioner for copies of the last report of examination of the concern. Having satisfied himself by a study of the papers that the applicant will probably be a desirable member, he may next institute an examination of the bank. A report of such examination together with the papers already described is then forwarded to the Federal Reserve Board for action. The board refers the documents to its Division of Examination for study, and upon receiving the division's report, either accepts or rejects the application.

A state institution occasionally hesitates to apply for membership, fearing that through technical defects in the application or unavoidable conditions attendant upon its business it may be rejected. It is rightly felt that such rejection, if known or surmised by competitors of the company, might hurt its standing or leave a bad record with dangerous possibilities for the future. There is, however, little or no basis for such fears. Long before the time comes for formal action by the board the applicant will have been advised of reasons (if such exist) for considering its admission impossible. In many cases such obstacles are easily overcome, and the Federal Reserve agent points out the means of eliminating them. If they are practically ineradicable the applicant will have ascertained that such is the case before it has gone far. Even before its board has authorized application the state bank has usually been able to get a preliminary informal opinion which is in nearly all cases borne out by a subsequent action. Should a bank's application pass the scrutiny of the Federal Reserve agent and receive his favorable recommendation, but be looked upon with doubt or disfavor by the Reserve Board, it is customary to send the applicant an informal letter suggesting that the application be withdrawn pending the introduction of changes along lines indicated. If the bank then feels that compliance is too onerous or expensive it can request suspension of action or withdraw its application entirely.

Favorable action by the Reserve Board on an application for membership is frequently accompanied by a statement of conditions or changes in policy to which the applicant will be asked to assent. Some of the conditions often made in this way are as follows:

1. Elimination or limitation of certain lines of paper

- e.g., too large real-estate loans.

2. Agreement not to take on or initiate new kinds of business without consent.

3. Restriction of acceptance lines to 100 per cent of capital and surplus.

4. Limitation of maximum loan to any one person or corporation.

5. Miscellaneous modifications of internal organization or management.

These requirements have never been considered onerous or oppressive, but if they prove unacceptable to the applicant it may decline to comply and may thus automatically suspend further action on its application. Assuming, however, as in the vast majority of cases, that the conditions are satisfactory, the company signifies its acceptance of the terms by letter or telegram, and the Reserve agent of the district is so advised. Thereupon the company is in position to proceed with the details necessary to complete its active membership in the Reserve bank of its district. Such entrance upon active membership involves assumption of the same duties that devolve upon all members and are as follows:

Subscription to stock. The new member subscribes to the stock of the Federal Reserve bank of its district in an amount equal to 6 per cent of its own capital stock and surplus. Should the member bank subsequently increase or decrease its stock or surplus it makes a corresponding change in its holding of the stock of the Federal Reserve bank.

Payment of subscription. One-half, or 3 per cent, of this subscription to the stock of the Reserve bank is payable at once in cash or acceptable exchange, the other half remaining subject to call.

Simultaneously with the payment of the subscription to capital stock, the new member must establish (and thereafter maintain) with the Reserve bank a "reserve balance" payable in cash or acceptable exchange as follows:

1. If situated in a central reserve city, 13 per cent of its aggregate demand deposits and 3 per cent of its time deposits.

2. If situated in a Reserve city, 10 per cent of its aggregate demand deposits and 3 per cent of its time deposits.

3. If situated elsewhere, 7 per cent of its aggregate demand deposits and 3 per cent of its time deposits.1

1A "time deposit" under the Reserve Act includes deposits payable after thirty days, savings accounts, certificates of deposit subject to notice of thirty days or over, and postal savings deposits.

The company is now a full member in regular standing.